AntAC Newsletter

Dear friends!

Your are interested in Ukraine and willing to follow the most recent anti-corruption developments in the country?

Then subscribe to our regular (weekly) updates.

We are covering:

1. The most burning successes and challenges of the anti-corruption reform in Ukraine

2. State of implementation by Ukraine of international obligations and commitments in the area of the anti-corruption

3. The most crucial and fresh cases of corruption investigations and revelations from journalists and law enforcement agencies of Ukraine

More news and publications in English are available at our webpage; the most recent and burning anti-corruption news in English we tweet here.

Yours, Anti-corruption Action Centre

  1. Subscribe to our weekly updates

Караємо зашкварених мажоритарників

Holding those responsible for syphoning money from procurements.

Watchdogging for public procurement of drugs.

Map Ukrainian Politically Exposed Persons (PEPs)

Foreign partners condition Ukraine to fight corruption. We are monitoring how Ukraine implements these obligations.

Exploring corruption and learn to fight it.

Helping to return the money stolen by corrupt officials back to Ukraine.

“Sumykhimprom”: the “State” Plant of Firtash’s – Investigation

The chemical and gas tycoon Dmytro Firtash, one of the financial pillars of the Yanukovych regime, has been under investigation in Austria for three years now. Yet, his companies are still profiting in Ukraine. What is more, even after the Revolution of Dignity, the oligarch is still in control of his own as well as the state companies. The chemical plant “Sumykhimprom” is one of them.

This investigation is conducted by the programme “Schemes” (joint project of Radio Liberty and “UA:Pershyi” TV-channel).

The public enterprises and plants continue attracting the powerful and the businessmen associated with them, as some kind of corruption magnets.

“Sumykhimprom”, the chemical plant of strategic importance for Ukraine’s economy and defense, is one of them.

240 hectares of land. Over thirty shops. “Sumykhimprom” is one of the major producers of phosphate fertilizers and pigments in Ukraine. The plant supplies titan dioxide, which is the main component for varnishes and paints to over 30 countries. After the Crimea annexation, “Sumykhimprom” is the only remaining producer of the substance in Ukraine.

Firtash-2
The titan dioxide is supplied to over 30 countries by “Sumykhimprom”

 

99 percent of the plant belongs to the state. De facto, however, it is controlled by the Ukrainian oligarch Dmytro Firtash since at least 2010 and up to now.

“In 2010, as soon as Yanukovych became President, the plant was given away to the Firtash group to do as they please”, – says Yuriy Nikolov, the journalist of “Nashi Groshi” project.

Firtash-3
Yuriy Nikolov, journalist of “Nashi Groshi” project, says that the plant was given to Firtash

 

At the time, Ihor Lazakovych is appointed director of “Sumykhimprom”, he was also manager of one of the Firtash companies. Ihor Lazakovych used to work at “Krymskyi Tytan” – another plant whose shares Firtash managed to get hold of in 2004.

Firtash-4
Ihor Lazakovych, manager of one of Dmytro Firtash’s companies

 

In what way did this appointment help the oligarch profit from the Sumy state enterprise?

Since the Lazakovych appointment, most products for the plant are supplied by enterprises associated with Firtash. He gains almost total monopoly on supplying a wide range of products – from petrol to fabrics, hundreds of millions UAH worth of contracts. These facts are uncovered by the investigative journalists analyzing the official “Bulletin of Public Procurements”.

“The company “Sintez Resurs”, founded by Mr. Kikhta, one of “Ostkhem” top managers, suddenly becomes the primary supplier of practically anything. The “Krymskyi Tytan” manager (the one Lazakovych comes from) happened to be director of “Sintez Resurs”, – adds Yuriy Nikolov.

It has been revealed through the journalist investigations and then the Prosecutor’s office evidence, that some of the goods, supplied by “Sintez Resurs”, were overcharged.

Chemical plant “Sumykhimprom”: former successful giant turned debtor
Chemical plant “Sumykhimprom”: former successful giant turned debtor

 

In under two years, under the Lazakovych management, the once successful chemical giant “Sumykhimprom” became debtor. According to “Ekonomichna Pravda”, the plant accumulated 1.5 billion UAH of debt, a lot of it to the Firtash firms and banks associated with him.

Another company, associated with Firtash, immediately came into play and bought part of the debt, then demanded in court that the bankruptcy procedure be initiated. Since 2012, the readjustment stage has been implemented, meaning that the plant management has to do all it takes for “Sumykhimprom” to pay off at least some of the debt.

However, Firtash is still in control, just as before. The reason? The task of normalizing the situation at the plant was assigned to the very Ihor Lazakovych whose management led the plant to the near bankruptcy in the first place.

These events took place when the predecessors of the current government held the office. What about now, did the post-Maidan authorities take the plant from the oligarch? According to the journalists, after Yanukovych fled to Russia, one of the financial pillars of his regime is still in control of the state plant and continues profiting from it.

Here is just one of the indirect proofs: the plant has its accounts at the bank “Klirynhovyi Dim”, and its final owners happen to be none other than the Firtash’s business partners – Yulia Liovochkina, sister of Serhiy Liovochkin, former President’s administration chief, and the independent MP Ivan Fursin, Firtash’s friend and business-partner.

2017-11-06 Сумихімпром Фірташ Eng Picture 1 Eng

What about the state procurements? Does the old scheme continue working despite the change of government?

For instance, in September of 2017 “Sumykhimprom” procured about 80 million UAH worth of scrap metal. The Sumy company “Ukrspetslom” LLC happened to be the supplier.

In 2012 it was founded by Roman Khromov and Anton Prykhodko. The latter worked for the Firtash’s “Krymskyi Tytan” from 2005 to 2008. Ihor Lazakovych happened to be a manager there at the same time.

2017-11-06 Сумихімпром Фірташ Eng Picture 2 Eng

As it turns out, the firm, associated with Firtash, supplies products to the plant, headed by his manager. How can they justify this fact at the state enterprise itself? The “Schemes” journalists headed to Sumy.

The “Schemes” headed to Sumy to look into the situation at the state plant
The “Schemes” headed to Sumy to look into the situation at the state plant

 

“Sumykhimprom” is just one kilometer away from the railway station Basy. That is where the scrap metal procured from the company, associated with Firtash, was transported to.

It was the firm “Ukrspetslom” that won the tender. It is officially registered in the location not far from the plant, current destination of the filming crew.

At the office, they did not want to talk to the journalists, so the latter had to directly phone one of the founders of “Ukrspetslom”, Anton Prykhodko.

When asked if he had worked alongside Lazakovych at “Krymskyi Tytan”, Prykhodko says: I never worked at “Krymskyi Tytan”. I have no idea what Lazakovych looks like. What comment should I offer? I do not get what you are hinting at”.

After a few minutes of phone conversation, some facts of Prykhodko’s work experience start coming back to him. He says that the then manager of “Krymskyi Tytan” offered him the position of the recreation center manager for employees of the Firtash’s plant. He had nothing to do with the production process, adds Prykhodko. Speaking about the recent “Sumykhimprom” 80 million UAH contract, he is brief: he is in no way connected to Firtash.

“What conflict of interest are you talking about? “Ukrspetslom” won the tender via the Prozorro program, any company could compete in the tender, you are aware of that, and they must have participated”, adds Prykhodko.

Indeed, one other company did take part in this multi-million tender – “Stalvtormet” from Dnipro. The journalists of the program were able to find out that this firm was founded a day before the tender was announced. Authorized capital – ten thousand UAH. Registration address – the flat of the only founder and director Iryna Lartseva. She did not wish to comment on her participation in the 80-million-UAH tender.

2017-11-06 Сумихімпром Фірташ Eng Picture 3 Eng

“First, I would like to take a look at your articles, what you write and how competent you are”, – says Lartseva.

For a month, the “Schemes” journalists have been trying to arrange filming and interview with the plant management, yet the latter said no. In Sumy, once more, they tried to get inside the public company.

The deputy plant safety manager came out to talk to the journalists and offered them to send a written inquiry, even though they had sent one before and got no reply.

Probably, the only place to get hold of Ihor Lazakovych remained Zarichnyi district court of Sumy, where the case against Ihor Lazakovych, “Sumykhimprom” PJSC manager, is being heard.

Zarichnyi district court in Sumy
Zarichnyi district court in Sumy

 

Before the beginning of the court session, the journalists tried to talk to Lazakovych a few times, but his lawyer, prevented them from doing it.

Lazakovych in court with lawyers
Lazakovych in court with lawyers

 

Even after the court session Lazakovych was not willing to talk to the journalists.

“I am not going to comment on anything”, says Lazakovych and suggests submitting an official inquiry. Just like the one that had already been submitted a month before.

Lazakovych meticulously avoided talking to the journalists
Lazakovych meticulously avoided talking to the journalists

 

The Prosecutor’s Office in Sumy suspects Lazakovych of abuse of authority. Under this article, he could be sentenced to up to 8 years of prison.

“The incrimination volume includes the two episodes, to put it simply. One of them is procurement of goods for the company at inflated prices and fees for legal service, suspected to be without grounds”, tells us Oleksandr Hliadchyshyn, Chief of the Prosecutor’s office in Sumy region.

In Sumy Prosecutor’s office they say that the incrimination volume includes two episodes
In Sumy Prosecutor’s office they say that the incrimination volume includes two episodes

 

“There were wooden pallets, tare for the products that the chemical plant manufactures. This tare was procured at the overcharged price, and the price difference constitutes the amount of the damages”, – adds Hliadchyshyn.

According to prosecution, the amount of losses, incurred by “Sumykhimprom”, because of Lazakovych’s management, equals 6 million UAH. Last year, though, when the plant’s CEO was served a note of suspicion, this number was 15 times that.

“It was preliminary information; after that, if you look up information reports, the prejudicial inquiry had been going on for quite a while; the bill of indictment was submitted to the court including only those episodes and facts, investigated in the proceeding, which could prove the guilt before the court with enough evidence”, explains the prosecutor.

Times have changed, but schemes remained?

Procurement of the wooden pallets at inflated prices and scrap metal supplies are far from being the only examples of how companies, associated with Firtash profit from the public enterprise “Sumykhimprom”. The most important contracts for supply and repairs for the plant are still being given to the firms associated with the Ukrainian oligarch.

As it turns out, after the Revolution of Dignity, the oligarch’s scheme of profiteering at the public plant changed little, if any.

The only thing that changed was firms associated with the oligarch, firms getting the state contracts of “Sumykhimprom” in bulk. Where previously it was “Sintez Resurs” LLC, now it is, say, “Tytan Ukrainy” LLC. In just a year, this company was able to “tender” over a billion UAH from the state plant.

“Tytan Ukrainy” started getting the “Sumykhimprom” state contracts in bulk
“Tytan Ukrainy” started getting the “Sumykhimprom” state contracts in bulk

 

Again, “Tytan Ukrainy” is controlled by the Firtash group. All such contracts are controlled, meaning they can be fulfilled and payed as the present “Sumykhimprom” management pleases”, – tells us Yurii Nikolov.

While the journalists were preparing this report, they learned that the court substituted Ihor Lazakovych, responsible for readjustment, with Dmytro Nikitin, CFO of the plant. Now, as he is managing the plant, its state contracts are once more being given to firms influenced by Firtash, just as before.

The “Schemes” have also sent a written inquiry to Dmytro Firtash’s Group DF asking why the oligarch is so interested in “Sumykhimprom” and how they can explain the fact that many state contracts of the plant are given to the companies linked with the businessman. Three weeks have passed, still no reply for the journalists.

“At the moment, the inquiry is without any reply, unfortunately. Whether it will be given later – it might, or it might not. You see, it’s like probability theory, nothing more”, – explained Viktoria Illinska, press secretary of the Group DF.

Will the state ever regain control of “Sumykhimprom”
Will the state ever regain control of “Sumykhimprom”

 

As for the state, what does it do to regain de facto control of the plant?

As far back as two years ago, the State Property Fund of Ukraine tried to invalidate the bankruptcy procedure.

“The whole point of the bankruptcy procedure is to maneuver the owner of the company – the state in our case – out of the office”, – says legal expert Bohdan Borovyk.

Legal expert Bohdan Borovyk says that the plant “Sumykhimprom” is likely to remain in the bankruptcy procedure for a long time
Legal expert Bohdan Borovyk says that the plant “Sumykhimprom” is likely to remain in the bankruptcy procedure for a long time

 

If the beginning of the bankruptcy procedure was invalidated, it would give way to cancelling the readjustment, which would mean removing the oligarch’s management from the plant.

Lawyers of the State Property Fund of Ukraine stated that it could be appealed on the grounds that the company, linked with Firtash, that initiated the bankruptcy, could have taken some of the plant’s raw material in exchange for the debt, but did not.

Однак Фонд всі судові інстанції програв, а пізніше і Верховний суд відмовився переглядати їхні рішення.

“Unfortunately, the judicial system is what it is, it is a separate branch of power, it passes decisions and it passed the decision to refuse our claim. Meaning that it is practically impossible to further appeal the decision”, – tells us Deputy Chief of the State Property Fund of Ukraine Yuriy Nikitin.

Now “Sumykhimprom” is being prepared for privatization. According to deputy chief of the State Property Fund of Ukraine Yuriy Nikitin, the state is hoping to find the investor able to lead the company out of the financial crisis.

“The shares are worth 200 million UAH, including the debts of the company, to various establishments, including the state ones, the Taxation office, the amount of the debt accumulated is quite significant, that’s why an independent appraiser estimated the package this way”, – tells us Nikitin.

He adds that in the Fund they do not deem it necessary to hold the state package of shares.

However, finding such buyer is no easy feat, as the new investor would have to pay hundreds of millions for the plant without being able to manage it, while the readjustment procedure is going on. It is planned to continue for 17 years. That is not the end, however. Along with the shares, the new buyer will get the debt of the plant, including that to the Firtash companies. Almost one and a half billion UAH worth of debt.

“Sumykhimprom”: 240 hectares of the territory, over thirty workshops
“Sumykhimprom”: 240 hectares of the territory, over thirty workshops

 

Legal expert Bohdan Borovyk says that the plant “Sumykhimprom” is likely to remain in the bankruptcy procedure for a long time.

“This is a catch-22 situation, it is exactly what the person initiating it was interested in, as it is much more profitable than privatization. If you privatize an enterprise, you will have to pay the state for it. In this case, however, de facto control over the enterprise is obtained without making any payments for privatization”, – says Borovyk.

As it turns out, instead of buying out “Sumykhimprom” from the state, all Firtash had to do was to infiltrate the right person into the plant, who would then practically make the plant bankrupt. Soon, after the readjustment procedure, he would continue controlling the plant through his people at the management and get hundreds of millions worth of contracts. Therefore, the state still cannot influence the situation at the plant. It seems unlikely that the state will be able to regain control of the plant any time soon.

Heorhiy Shabaiev, “Schemes”, joint project of Radio Liberty and “UA:Pershyi” TV-channel, November 3